Pricing Research

Dr. Plavini Punyatoya

Xavier Institute of Management,
Xavier University, Bhubaneswar
 Price
The value that one has to put on the utility that one receives
for goods and services

One of the four Ps of marketing

 Pricing Research
Deciding optimal price for a new product (innovation)

Correcting price of an existing product (brand management)

Understanding value-price equation for a brand

 Firms use 2 most common ways of understanding
pricing decisions
1.Existing category management systems: pricing activity in the existing
category
-It product category is existing or its a line extension

2.Primary survey research: To get greater consumer insight

-For innovative products and if category is less developed
-More robust & valid
Ipsos Marketing
 Price elasticity of demand (PED)
Importance of demand

Price of an item increases, the demand for that item will decrease
(Economics concept)

PED: The percentage change in quantity demanded relative to the

percentage change made in price
Price elasticity of demand (PED)
 Pricing method
2 main approaches

(a) Pricing the total product (pricing for a complete concept/product)

(b) Pricing individual elements (line branding, features) of a product offering:

conjoint analysis is used, trade-off analysis of multiple attributes
 Variables of importance in pricing
research
Consumers willingness to pay (WTP): the price that a consumer is willing
to pay at most for a given quantity of a certain product or service

Price sensitivity: the extent of how responsive consumers are or will be

when prices are changed

Value: the objective worth to a customer of satisfying the

benefits they seek from a product or service
 Pricing the Total Product
1.Pricing the product individually: good during early phase of new product
development

2.Pricing the product competitively: existing products or new products with

unique business value
 Some Specific Price Research
Techniques
(A)Price the Product Individually
1.Buy scale or Intention to purchase (ITP)
2.Gabor-Granger Technique
3.Price Sensitivity Measurement (PSM): Van Westendrop Pricing Model
4.Monadic concept

(B)Price the Product Competitively

1.Brand Price Trade-off (BPTO) Technique
2.Simple Discrete Choice Model
 (A)Price the Product Individually
1.Buy scale or Intention to purchase (ITP)

Determine Willingness to Buy

Various scales developed to measure Purchase intention
Eg: Dodds et al (1991), 7-point scale

Willingness to Buy Indicators

1. The likelihood of purchasing this product is: (very high to very low)
2. If I were going to buy this product, I would consider buying this model at the
price shown (strongly agree to strongly disagree)
3. At the price shown, I would consider buying the product (strongly agree to
strongly disagree)
4. The probability that I would consider buying the product is: (very high to very
low)
5. My willingness to buy the product is: (very high to very low)
 1.Buy scale or Intention to purchase (ITP)

Most famous: traditional 5-point scale to measure purchase intention

developed by Johnson (1979)
1.Definitely will not buy
2.Probably will not buy
3.Might/might not buy
4.Probably will buy
5.Definitely will buy

Stated purchase intents are converted to probability of purchase (weights

applied)
-Top box approach
 1.Buy scale or Intention to purchase (ITP)
An overall estimate of purchase probability:

5
Pr(Trial ) wi (ni / N )
i 1

where, N=total respondents in the sample

ni=number of respondents stating a specific intention response category
wi=weight applied to that response category

Open 1 ITP-Question.xlsx & Pricing-Problem.docx

Sheet 1; case 1-Dettol
Sheet 2; case 2-Image copier
 2.Gabor-Granger Technique
Asks a series of priced purchase interest questions, like Would you buy X at
price Y for a single product/concept

So, respondents answer for 1 product/concept at different price points

(1 respondent, multiple price point)

Prices are presented in random order

The responses are cumulated and a demand curve for the product/concept
at each price point is reported. Demand curve has proportions of consumers
interested in buying at a certain price point.

It is also called price-sales curve. The level of sales can be calculated for
each price point, and from this the optimal price point can be determined.
 2.Gabor-Granger Technique
Simplest approach

Easy to implement

It was developed in Australia in the year 1960s by Clive Granger and Andr
Gabor

Open 2 Gabor Ganger-Question.xlsx & Pricing-Problem.docx

Sheet 1; case 3-K7 Holidays
Sheet 2; case 4-Oral-B toothpaste
 3.Price Sensitivity Measurement (PSM): Van
Westendrop Pricing Model

Introduced in 1970s by a Dutch economist, Peter van Westendorp

Price Sensitivity Meter (PSM): most widely used in pricing research on an

individual product/concept

Ask respondents four price-related questions and then evaluate the

cumulative distributions for each question
 3.Van Westendrop Pricing Model
Four questions asked are:

1. At what price would you consider this product to be so inexpensive that the
quality is not to be trusted? (Too Cheap/Inexpensive)
2. At what price would you consider this product to be inexpensive but probably of
acceptable quality? (Cheap/Inexpensive)
3. At what price would you consider this product to be expensive but still a possible
purchase ? (Expensive)
4. At what price would you consider this product to be too expensive to buy
whatever its quality is? (Too Expensive)
3.Van Westendrop Pricing Model

Rs 25.5

Rs 24
 3.Van Westendrop Pricing Model cntd.

Optimal Pricing Point (OPP)

Same number of respondents indicate that the price is too expensive as
those who indicate that the price is too cheap
Least number of respondents rejected the product for either of the two
reasons
Point at which too expensive & too inexpensive lines intersect
The point of maximum revenue for the brand
Also called the Penetration Price
Number of persons who would possibly consider purchasing the product
is at a maximum
 3.Van Westendrop Pricing Model cntd.
Indifference Pricing Point (IDP)
Percentage of respondents who consider the product inexpensive
equals the percentage who consider it expensive
Point at which expensive & inexpensive lines intersect
Tends to be close to the current average market price
Also called Perceived Normal Price
Number of persons who view the product as being good value is
equal to the number of persons who view it as being expensive
3.Van Westendrop Pricing Model cntd.
 3.Van Westendrop Pricing Model cntd.

Point of Marginal Inexpensiveness/cheapness

Number of participants who view the product as too cheap is equal to
the number of persons who view it as expensive
Point at which too inexpensive & expensive lines intersect
Also called Lowest Reasonable Price
If the product becomes cheaper, the number of persons who view it
as too cheap will increase. If it becomes more expensive, the number
of those who no longer view it as being good value for money will
rise.
 3.Van Westendrop Pricing Model cntd.
Point of Marginal Expensiveness
Number of participants who view the product as being too
expensive is equal to the number of persons who view it as not
being expensive
Point at which inexpensive" and "too expensive lines intersect
Also called Highest Reasonable Price
If it becomes more expensive, the number of participants who see it
as being too expensive will increase, and conversely, the number of
persons who view it as being not expensive will increase when it
becomes cheaper.
3.Van Westendrop Pricing Model cntd.
The range between the Points of Marginal Inexpensiveness and
Expensiveness is also known as the Range of Pricing Options.

The market price should be located somewhere between these points.

 3.Van Westendrop Pricing Model cntd.
Limitations
Respondents ability to answer these questions is dependent upon their
having a good reference price.

Contains a large range of prices

More applicable when pricing issues revolve around relevant price

thresholds
 3.Van Westendrop Pricing Model cntd.
Open 3 Van Westendrop-Question.xlsx & Pricing-Problem.docx
Sheet 1; case 6-Samsung toaster

Ans:
OPP=Rs 1100
IPP=Rs 1125

PMI=Rs 1075
PME=Rs 1150

RPO=Rs 1075 to Rs 1150

 4.Monadic concept
Alternative price points for the same concept or product within one study design

First, the survey data is split into separate cells, followed by a buy-response question for
a product with a different price for each cell.

One Respondent is shown (or read) a single concept, with a single price, and asked
about his intentions to purchase. When more prices need to be measured, however,
more sample cells must be added.

Purest means of measuring price sensitivity, as each respondent sees only one price.

More applicable for a fully developed single concept.

Practically, it can be difficult to fund and execute Monadic studies when several price
points are in play.

Independent samples for each price point; imply high sample size required for research
 (B)Price the Product Competitively
1.Brand Price Trade-off (BPTO) Technique
Measures price sensitivity of a brand in a competitive context

In BPTO, consumers choose a brand or concept from a group of priced

brands/concepts. The consumer then makes another choice from the group
of brands /concepts at different prices. This generally continues from 5-10
times per consumer.

BPTO is an extension of the Gabor-Granger approach to a competitive

context

To ensure that the findings obtained are valid, relevant price ranges must be
used for all products.

First, the brands under study are presented to respondents at base prices &
then the price of the selected product is increased by a set amount until it is
no longer selected.
 1.Brand Price Trade-off (BPTO) Technique

Figure 1 depicts the first step where a consumer would be exposed to five
concepts, selects concept B at $3.75, and then gets exposed to the same five
concepts with concept B now set at $4.00 (Figure 2).
 1.Brand Price Trade-off (BPTO) Technique
Clearly discernible product alternatives must be presented to respondents,
as theyll evaluate the product as a whole

Respondents see brand as a fixed bundle of benefits (whole) & highest price
is associated with lowest value. At each purchase, a trade-off happens
between price & value.

Data Collection: Respondents shown a card with brands & their prices. He
chooses one & then price of that brand increased. Fresh choice is made.
Research end when respondent opt out or options being tested are
exhausted (Fig 1 & 2)
 1.Brand Price Trade-off (BPTO) Technique
The following questions are answered: (Analysis)

-What are the maximum acceptable prices for a product/brand?

-What differences in monetary values are perceived by consumers between the products
being presented?

-What market shares can a product achieve at different price levels in an environment in
which it competes with other products?

-What would happen if the price of product X is raised, while the prices of Y, W and Z
remain at the same levels? (price elasticity of a brand)

-Can we draw demand curve of a brand?

http://www.ifad.de/en/consulting/654-brand-
price-trade-off-(bpto).php
 1.Brand Price Trade-off (BPTO) Technique

Questionnaire demo:
http://www.ifad.de/en/consulting/654-brand-
price-trade-off-(bpto).php
 Van Westerndrop Model & BPTO
Together Van Westerndrop Model & BPTO can be used

VWM can provide range of price options & we can use BPTO to find the
best price

Brands market share (future), based on those price points found in VWM,
can be found in BPTO

Two rich, robust and vital pricing methods

Respondent selection is important

 2.Simple Discrete Choice Model
A Simple (Brand/Price only) Discrete Choice Model, with inclusion of none of
these option: Identical to BPTO model

SDCM: product or service alternatives built up from combinations of the

features are provided to respondents

Not only provide share & utility deliverables (we get in BPTO), but also
Elasticities, cross-elasticities and brand proximities are all deliverables provided
with discrete choice model

Provide deeper knowledge of price sensitivity and the impact of competitive

action than BPTO

Survey:
-Price is changed during the survey in a static set of product choices, displayed in a
line-up of scenarios (different scenarios).
-Then the respondent has to state which product he would like to purchase the
most under the given circumstances
 2.Simple Discrete Choice Model
Example: Choosing a laundry detergent brand

Lets say: five product features affecting decision are

- brand, price, form, whether the detergent had a bleach alternative, and
whether and how the product were scented

Suppose these were the options from which we would construct

hypothetical product choices:
-Four brands: Our Brand, Their Brand, Brand M, Brand Q
-Price for 100 oz. container: $3.50, $4.15, $4.95, $5.45
-Form: liquid, powder
-Bleach alternative: with bleach alternative, without bleach alternative
-Scent: mountain breeze, ocean fresh, spring rain, unscented
 2.Simple Discrete Choice Model
All possible combinations : 4 brands x 4 prices x 2 forms x 2 bleach
alternatives x 4 scents = 256 possible hypothetical products

Decrease these alternative situations by: balancing act

-contribution of each product feature to the decision choice
-unique contribution of each feature to that choice, uncontaminated by its
association with other features

By selecting the correct set of feature combinations applied to each brand:

12 choice alternative sets
2.Simple Discrete Choice Model
 2.Simple Discrete Choice Model
Statistical analysis

In a DCM, we are decomposing the decision process by determining which

aspects of products/services are most responsible for the purchase choice,
which are less responsible, and the magnitude of their contribution to the
choice.

Outcome:
- In the detergent example, does it matter whether we have two or three
different scents (and which ones should we market)?
- Are the competitors weve chosen to look at viewed as more or less the
same, as commodities (i.e., brand makes no difference in the choice
decision), and if so does the choosing devolve to price?
- If that is the case, at which price do we optimize our brands usage?
- Is there one product feature that stands above the others in determining
consumer choice, and can we claim an advantage on that feature?
- If so, can we position our brand that way?
 2.Simple Discrete Choice Model
Brand product proximities can be reported as a matrix, presented as clout
and vulnerability to determine the strength and weakness of the brand

Ipsos Marketing
 2.Simple Discrete Choice Model
Pros:
-Flexible method
-Most comprehensive method to understand pricing scenario building

Cons:
-Availability of incomplete external information: poorly defined competition,
features , price ranges; unable to gather distribution and channel
information; competitors unpredictable behaviors
-Costly
-Skilled & qualified marketing research firm is required
Thank You
 References
http://www.ag-bwz.at/unterlagen/upload/kurs85/IMR%202_Report_Pricing%20Research.pdf
Kotler, P, Keller, K.L., Koshy, A. and Jha, M. (2009). Marketing Management: A South Asian
Perspective, New Delhi: PHI, 13th Edn. (KKKJ)
Stenger, C. (2008), Choosing the best pricing techniques to address consumer goods pricing
challenges, Ipsos Marketing
Smith, G. E. and Nagle, T. T. (2002): How Much Are Customers Willing to Pay?, Marketing Research,
Winter, pages 20-25.
Dodds,B.K., Monroe,K.B.,&Grewal, D. (1991). Effect of price, brands, and store information on
buyers product evaluation. Journal of Marketing Research, 28(August), 307319.
Johnson, J.S. (1979). A study of the accuracy and validity of purchase intention scales Phoenix, AZ.
Armour-Dial Co. working paper.
Jamieson, L. & Bass, F. (1989). Adjusting stated intention measures..Journal of Marketing Research,
26, 336-345.
http://www.ifad.de/en/consulting/662-gabor-granger-method.php
http://survey.cvent.com/blog/customer-insights-2/the-return-of-van-westendorp
http://www.trchome.com/white-paper-library/wpl-general-research-and-statistics/191
http://www.marketresponse.com/mmt-04-
brandpricetradeoff.html?iframe=true&width=659&height=500